Modified KPSS tests for near integration
David Harris, Stephen Leybourne, Brendan McCabe
ECONOMETRIC THEORY | CAMBRIDGE UNIV PRESS | Published : 2007
This note suggests a simple modification to the Kwiatkowski, Phillips, Schmidt, and Shin (1992, Journal of Econometrics, 54, 159-178) test (KPSS test) so that it is applicable to testing the null hypothesis of near integration against a unit root alternative. The modified KPSS test is shown not to suffer from the asymptotic size distortion problems of the original KPSS test that are described by Müller (2005, Journal of Econometrics 128, 195-213). The test also has good asymptotic and finite-sample properties relative to the point optimal tests of Müller (2005) and Elliott and Müller (2006, Journal of Econometrics 135, 285-310). © 2007 Cambridge University Press.